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China Commerce Ministry Says Country Should Buy More Gold, Diversify Dollar Holdings

Tyler Durden's picture


As we wrote recently, in what may become a rerun of the Rare Minerals export cut, after an abnormally long silence, China is finally starting to make noises in the gold market. As Bloomberg reported earlier, according to an article appearing on the website of the Chinese Ministry of Commerce, Meng Qingfa, researcher as the China Chamber of International Commerce said that China should buy more gold to
diversify its foreign exchange reserves. "China should increase its gold holdings if the country
aspires to “internationalize” its currency.
China has $2.6 trillion of foreign-exchange reserves,
mostly in dollar assets, Meng said. Such holdings will put China
at a disadvantage when the U.S. dollar depreciates, as is
inevitable amid a worsening U.S. debt problem, he said." While this is not an outright endorsement that the PBoC will begin to warehouse the precious metal, it is certainly an escalation in the war on words that the US and China have been engaging in for quite some time. The bigger problem is what may happen to the world gold market should China, which is now the world's largest producer of gold, decide to internalize its gold product output. Already the country's gold demand is surging. Should roughly 340 tons, or the amount of gold China makes each year, be withdrawn from supply, no amount of Goldman contemplation on the matter of physical ETFs will prevent a spike in the metal price.

More from Bloomberg:

Gold demand in China, the world’s largest producer, already gained in the first half of this year as government measures to cool the property market and falling equities spurred investment, the Shanghai Gold Exchange said July 7.

Sales of gold products such as bars and coins by China National Gold Group Corp., owner of the country’s largest deposit of the metal, jumped as much as 40 percent in the first half, Song Quanli, deputy party secretary at the company, said July 7.

China’s gold output may rise to 340 tons this year, from 314 tons last year, solidifying the nation’s position as the world’s largest producer, Zhang Fengkui, section chief of the raw materials department at the Ministry of Industry and Information Technology, said on Oct. 16.

To increase physical gold supply, the central bank also said on Aug. 4 that it will “increase the number of commercial banks who are qualified to import and export gold, based on the market demand situation.” The central bank also said it will support overseas investment plans by “large-scale” bullion companies by backing them financially.

At this point the only variable is the position of China's State Administration of Foreign Exchange or the custodian of all foreign reserves. In July, SAFE announced that U.S. government
debt has the benefits of “relatively good” safety, liquidity,
low trading costs and market capacity. 

Gold is unlikely to become a major holding in China’s
foreign reserves because of the metal’s big price swings and
lack of interest payments, SAFE said then.

Is it time for an update on SAFE's opinion on US Bonds... and on gold?

h/t Robert


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Wed, 10/27/2010 - 17:57 | 681668 tmosley
tmosley's picture

November 3rd will be all the more interesting with this news story.

Wed, 10/27/2010 - 18:55 | 681791 ATG
ATG's picture

So gold goes down $-13?

Debt default deflation and palace coups beeches

Wed, 10/27/2010 - 19:28 | 681827 Goldilocks
Goldilocks's picture

Gold down $-13 (double negative) ... means it's up $13.

Captcha tells me so ...

... regardless, stock up on gold ... it's still a gift.

Wed, 10/27/2010 - 21:15 | 682103 dlmaniac
dlmaniac's picture

FT just published a pro-gold story. It's a warning sign that a rigging might be on the way.

Wed, 10/27/2010 - 21:00 | 682074 morkov
morkov's picture

isn't "...backing them financially." at the end of the post a kind of new-speak for backing them with labour and re'sources?

what i mean is that "funding" those enterprises is the well established (since egyptian times) sweat and brow of actual people...what else could it be???

...just saying


Wed, 10/27/2010 - 18:01 | 681682 trav7777
trav7777's picture

gord bitchez

Wed, 10/27/2010 - 18:02 | 681685 Rahm
Rahm's picture

Close, but no cigar.  Nice try, please play again.

Wed, 10/27/2010 - 18:09 | 681705 tmosley
tmosley's picture

Raht you say, round-eye?

Wed, 10/27/2010 - 21:39 | 682152 BrosMacManus
BrosMacManus's picture

you no-a frunny.

gohd, beechez?

Huángj?n g?urìde?

Wed, 10/27/2010 - 18:37 | 681764 Pool Shark
Pool Shark's picture

Gord tu espensive! No bai dam ting!

Wed, 10/27/2010 - 18:04 | 681689 Ragnarok
Ragnarok's picture
OT: JPMorgan, HSBC sued for alleged silver conspiracy


NEW YORK | Wed Oct 27, 2010 5:46pm EDT

NEW YORK (Reuters) - JPMorgan Chase & Co and HSBC Holdings Plc were hit with two lawsuits on Wednesday by investors who accused them of conspiring to drive down silver prices, and reaping an estimated hundreds of millions of dollars of illegal profits.

Wed, 10/27/2010 - 18:07 | 681697 TheGreatPonzi
TheGreatPonzi's picture

Lol. These investors don't know who they're attacking. Many have lost their lives trying to bring down the Crimex and the Rothschild gold fixing.

Wed, 10/27/2010 - 18:10 | 681709 tmosley
tmosley's picture

Morgan Stanley was successfully sued some years ago for not holding the gold or silver it was charging fees for.  I don't see why this lawsuit wouldn't work.

I mean, other than the fact that there is no rule of law in this country anymore.

Wed, 10/27/2010 - 18:12 | 681717 TheGreatPonzi
TheGreatPonzi's picture

Sueing for false services charged is a thing ; directly attacking the gold/silver cartel is another thing. Tens of billions are at stake, and many political ramifications.

Wed, 10/27/2010 - 18:16 | 681730 EscapeKey
EscapeKey's picture

There certainly is.

It's just that it only applies to peasants.

Wed, 10/27/2010 - 20:20 | 681981 tmosley
tmosley's picture

Morgan Stanley was a peasant?

Truth is, the law only applies to those without "pull" in congress, or rather, so long as no-one else has more "pull" when your interests conflict.

Of course, there are times when your pull disappears totally in an instant, due to political convenience.  People like to think there is a real plan made by the people in control, but the truth is that we are ruled by people who have no clue, no plan, and no understanding of economics, history, or human behavior.


Wed, 10/27/2010 - 18:53 | 681790 ATG
ATG's picture

Most cases against the gold and silver cartel were thrown out of court for no proper standing or jurisdiction

Wed, 10/27/2010 - 19:49 | 681852 Kina
Kina's picture

This is big news to go with Chilton comments the other day and those concerning a judge who was quoted as saying he would never rule in favour of a claim. And this is what I said investors should do.


If you have lost money because of illegal activities of others and can show that they occured then you should bring a case. You can't say I won't bother since the judges will never support a claim against JPM HSBC. That is giving up on rule of law.


What should happen is more investors do the same and try and expose the cartel and CFTC.

The heat should be turned up on the CFTC and the manipulating banks. They must know their balls are on the line should there be a strong surge in gold and silver buying that breaks them. The ashes will be picked over and the corruption of the CFTC exposed.


This should be a major issue for ZH. Wonder if a forensic examination of silver and gold activity is possible and would expose the obvious?

Wed, 10/27/2010 - 18:07 | 681699 DCon
DCon's picture

China makes Gold? How? Can I have the recipe?


Wed, 10/27/2010 - 18:11 | 681708 The 22nd Prime
The 22nd Prime's picture

Buy a mine. Smelt. Voila.

Thu, 10/28/2010 - 02:52 | 682628 lewy14
lewy14's picture

In[1]:= Prime[22]

Out[1]= 79

Just curious... is there something special about 79?

Thu, 10/28/2010 - 08:02 | 682835 The 22nd Prime
The 22nd Prime's picture

I run computer systems. Primes are used in encryption. Big ones. And I've always found primes fascinating.

But to answer your question, check the Periodic Chart.

Thu, 10/28/2010 - 21:51 | 684980 lewy14
lewy14's picture

Ah. I get it.

Primes are used in encryption. Big ones.

Job interview question: Mersenne Prime is

a) an M class planet in the Star Trek universe

b) a French cut of beef

c) a French porn star

d) a number one less than a power of two, divisible only by one and itself.

Wed, 10/27/2010 - 18:08 | 681703 JuicyTheAnimal
JuicyTheAnimal's picture

plus gold is pretty and you can drink it

Goldschläger is a Swiss cinnamon schnapps (43.5% alcohol by volume or 87 proof; originally it was 53.5% alcohol or 107 proof), a clear liqueur with very thin, yet visible flakes of gold leaf floating in it. The actual amount of gold is extremely small and serves as a sort of novelty: there is currently less than a tenth of a gram (0.1 g) of gold flakes in a 750 mL bottle of Goldschläger,[1] which, as of May 26, 2010, amounts to about 4.28 USD on the international gold market

Wed, 10/27/2010 - 18:09 | 681706 putbuyer
putbuyer's picture

Here we go... Faber and ZH on the money

Buy the way, don't ZH have so many nice clickable advertizers. keep it going bitches

Wed, 10/27/2010 - 18:11 | 681712 MiguelitoRaton
MiguelitoRaton's picture

Gold is the Kryptonite of the US, if China builds a credible store of the yellow metal, watch out.

Wed, 10/27/2010 - 19:01 | 681802 midtowng
midtowng's picture

Every year we here a quote out of China that they are talking about buying gold. Every year there is no follow through. And then couple years down the road China reports that it has bought another 400 tonnes of gold.

I don't think the quotes make much difference. China is going to do what China is going to do.

Wed, 10/27/2010 - 20:08 | 681958 Paul E. Math
Paul E. Math's picture

Like Manny Ramirez: it's China being China.  What're-ya-gonna-do?

Wed, 10/27/2010 - 21:15 | 682104 Bartanist
Bartanist's picture

Then China will be able to make big yellow boat anchors just like the US ... before the US gave away all of its gold to the Federal Reserve.

Wed, 10/27/2010 - 21:59 | 682190 BrosMacManus
BrosMacManus's picture

The Treasury owns the physical, issuing paper credits to the Fed at 42-ish (FOFOA). As long as the Treasury doesn't call in the private holdings and ban/limit it's private ownership, keeping it down until we can swamp the Chicoms with paper is our only protection against the Chicom's mercantilism. Call me naive, but our goobermint can't be as derelict and ignorant as we all portray them to be...a sick part of me wants them to be behind the cash-4-gold schemes. Yeah, the US is no shining city on the hill, but imagine the Chicoms being the lone superpower. Every time I hear people say how smart and virtuous the Chicoms are, I wonder if they've ever heard of the Cultural Revolution.



Thu, 10/28/2010 - 00:08 | 682415 Fred Hayek
Fred Hayek's picture

Exactly.  If only jackasses like Tom Friedman who sigh and get all tingly while contemplating China's dictatorship could be forced to live under it a little while, but not as Tom Friedman supercilious doofus from the new york times.  No, if only he could experience the Chinese government as just another journalist, one who seems to be prodding the government to change its policies.

Wed, 10/27/2010 - 18:12 | 681718 Chartist
Chartist's picture

So, is China working with the Fed to hold down the dollar to further prop our stock market so we feel rich enough to buy more of the rubber dog shit they export?

Wed, 10/27/2010 - 18:14 | 681724 Turd Ferguson
Turd Ferguson's picture

A must post every time China v US is mentioned:

Wed, 10/27/2010 - 18:15 | 681726 sschu
sschu's picture

There is growing pressure from a number of interested parties NOT to do QEII.  It makes me think that there is are significant power centers lining up against Bennie's helicopter ride. 

I think Bennie has to punt, wait for things to get worse before they beg him to bail them out.  QEII is a non-event.


Wed, 10/27/2010 - 18:30 | 681754 trav7777
trav7777's picture

I hope you read around here.

Because it's CLEAR, crystal, that all of the export mercantilist nations are DIAMETRICALLY opposed to a weak dollar!

That means Germany, Brazil, and China predominantly, and Japan to a lesser extent.  They want to preserve the status quo of perpetual export surpluses meaning lots of jobs for their populations.

Of course they are against QE.  The US should just knuckle under and go deeper into debt to buy the shit they overproduce so that they can continue to have massive surpluses.

Wed, 10/27/2010 - 18:24 | 681742 MeTarzanUjane
MeTarzanUjane's picture

Confucius say: Smoke more Hopium.

Wed, 10/27/2010 - 19:04 | 681805 TonyV
TonyV's picture

He also said:

Man who go to bed with itchy butt, wake up with stinky finger
Wed, 10/27/2010 - 18:26 | 681745 Lux Fiat
Lux Fiat's picture

Gross, Grantham and Orzag, as if on cue:


Wed, 10/27/2010 - 18:29 | 681753 Humpty Pundit
Humpty Pundit's picture

Wouldn't be interesting if China decided to eventually back the Yuan with gold? What a reserve currency that would be. :)

Wed, 10/27/2010 - 18:31 | 681755 trav7777
trav7777's picture

Why the fuck would they do that???

Everything China is about is a perpetually weakening currency in order to maintain export growth.  Pegging to a commodity would destroy their economy.  They wouldn't be able to do their mercantilist ponzi with a gold standard.

Wed, 10/27/2010 - 18:56 | 681793 MeTarzanUjane
MeTarzanUjane's picture

Maybe they do that because price of shiny go down? Maybe this help ahhh, export.

Wed, 10/27/2010 - 19:05 | 681807 Spalding_Smailes
Spalding_Smailes's picture

Not enough gold to back world finance .... also .....


As my reference to the Japanese yen might suggest, I am pretty skeptical about the likelihood of this happening, at least with some of the more excited predictions.  So, by the way, is the ADB, whose recent report (“The Future Global Reserve System — An Asian Perspective”), suggests that by 2035, the RMB may comprise about 3 to 12 per cent of international reserves.  This is a pretty reasonable prediction, in my opinion, and far from the more feverish claims we see reported almost daily.

If the renminbi ever becomes a major trading or reserve currency, it is going to take a long time for this to happen and will require a radical transformation of the Chinese economy and the role of the government.  This may seem like a surprising statement.  After all nearly every week we see reports about a new breakthrough for the renminbi, and almost every day someone important somewhere speculates publicly about what the world will be like when (never if) the renminbi displaces the dollar.

But away from all “qualitative” arguments about why this is unlikely, and there are many, I think there is a problem with the arithmetic of reserve currency accumulation.  If the rest of the world is going to use the renminbi as a reserve or trading currency, clearly it needs a mechanism by which to accumulate renminbi.  This is something on which a surprisingly large share of people who talk about the future of reserve currencies don’t seem to focus.

Leave aside the fact that foreigners are prevented from having renminbi accounts and that it will probably be many years, if not decades, before the PBoC is willing to allow full convertibility, with limited government intervention and no control over the setting up and trading of its currency.  The world still needs a way to accumulate renminbi in order for it to be a major trading or reserve currency.

Wed, 10/27/2010 - 22:57 | 682285 hamurobby
hamurobby's picture

Not enough gold to back world finance .....


Okay I will bite,

oh sure there is plenty plenty plenty of gold to back all of it twice, but not at this price.



Wed, 10/27/2010 - 22:02 | 682195 Turd Ferguson
Turd Ferguson's picture

If a gold-backed renminbi became the new global reserve currency, the Chicoms could jam that fucker right up the ass of every other country on earth, just like the US has done for the past 60 years. They could then deficit spend their way into a nice, little billion-person nanny state.

You're fooling yourself if you don't think that this is a possible endgame for them.

Wed, 10/27/2010 - 22:20 | 682219 Spalding_Smailes
Spalding_Smailes's picture

Gold can not back a world currency only fiat. Thats why they dump'd gold and with this came forex trading ... They could not do this using gold as a backstop.


Forex Trading is being called 'today's exciting new investment opportunity for the savvy investor'. The reason is that the Forex Trading Market only began to emerge in 1978, when worldwide currencies were allowed to 'float' according to supply and demand, 7 years after the Gold Standard was abandoned. Up until 1995 Forex Trading was only available to banks and large multinational corporations but today, thanks to the proliferation of the computer and a new era of internet-based communication technologies, this highly profitable market is open to everyone. The Forex Trading Market's growth has been unprecedented, explosive, and continues to be unequaled by any other trading market.

Wed, 10/27/2010 - 18:33 | 681759 Chartist
Chartist's picture

Is the Yuan really propping up the US dollar?...How far would the buck fall if China totally decoupled?

Wed, 10/27/2010 - 18:35 | 681762 HarryWanger
HarryWanger's picture

Personally, would love to see my gold holdings rise higher. 

Wed, 10/27/2010 - 19:29 | 681865 unum mountaineer
unum mountaineer's picture an interesting one harry. i like your avatar

Wed, 10/27/2010 - 18:39 | 681766 Humpty Pundit
Humpty Pundit's picture



I don't really think they would do that any time soon. By eventually I meant much later.

Wed, 10/27/2010 - 18:43 | 681768 razorthin
razorthin's picture

Go China!  Love the monetary schooling of our ball-less Fed and Treasury.  Is Mandarin difficult to learn?  How about German?

Wed, 10/27/2010 - 18:51 | 681788 espirit
espirit's picture

Pretty (valuable), and you can drink it also.

Wed, 10/27/2010 - 18:59 | 681797 Spalding_Smailes
Spalding_Smailes's picture

Guy can't sell gold coin for $50.00 ??? Wow ... Not good for the people that think physical gold is the great wall of china...This is who you will be dealing with if shit hits the fan.

Wed, 10/27/2010 - 19:44 | 681907 unum mountaineer
unum mountaineer's picture

if shtf then the first girl could sell her body in exchange for good and otehr services...see..creative...

Wed, 10/27/2010 - 21:35 | 682146 RiffRaff
RiffRaff's picture

Didn't junk you, but please.

Doubt he could sell a share certificate of Google for 2 goats in the African bush as well.  What does it prove? - That differing estimations of value are what make a market.

I imagine that the majority of ZH readers would love to encounter such people if TSHTF.

People that have demonstrated such poor judgement to so radically undervalue gold will likely have accumulated little of value and will likely only have their "personal services" to trade.

Wed, 10/27/2010 - 23:07 | 682306 hamurobby
hamurobby's picture

Well it proves one thing, gold is definitely in a bubble.

Thu, 10/28/2010 - 01:49 | 682572 TheGreatPonzi
TheGreatPonzi's picture

It just proves that the average American is a retard who doesn't know what gold is. Nothing more.

Wed, 10/27/2010 - 19:19 | 681845 cranky-old-geezer
cranky-old-geezer's picture

China is going to put the smackdown on Wall Street, mark my words.

Wed, 10/27/2010 - 19:25 | 681854 let x equal x
let x equal x's picture

Uh Oh...Tonight that wacky, zany madman Cramer was telling his sheep to put 20% of their portfolio in gold...(and AEM).

Wed, 10/27/2010 - 19:31 | 681867 Snidley Whipsnae
Snidley Whipsnae's picture

It isn't just China that is accumulating gold, but most of the members of the SCO.

"But what must have really got under the skin of the BIS is that it knows the real value of bullion is considerably in excess of the market price. It knows gold is underpriced, because the BIS and its senior members have been suppressing the price for the last forty years, which has resulted in an acute shortage of stock. But when they embarked on this course in the 1970s they would not have foreseen how gold would be made available to the masses through yet-to-be-invented ETFs; nor could they have foreseen the emergence of Russia and China from deep communism into aggressive capitalist-style development, generating hundreds of millions of new gold-loving savers.  Consequently the old-guard BIS members have lost embarrassing quantities of bullion and cannot confess this to the markets. Presumably they had hoped that by withholding this information they could bluff it out; and they might have succeeded had it not been for the very serious financial and economic deterioration in the global economy, which raises the possibility of a Fed-induced dollar crisis, triggering new demand for physical bullion.

As well as these problems there is growing evidence of disruptive intent behind the gold policy of the ex-communist nations. I recently covered this in an article that tied in the relationships of the Shanghai Cooperation Council. In that article I pointed out that the substantial majority of today’s gold-buying nations are members of, or are associated with this organisation. As if to confirm these fears, in the last few days Iran, which is an associate member of the SCO, announced it is now buying gold. Furthermore, China is restricting the export of rare earth metals, which with the energy policies emanating out of the SCO membership, has the appearance of a coordinated attack on the Western economic system. If such a conspiracy exists, gold is central to it."

Don't know what the SCO is? When the SCO was formed the US requested 'observer' status but was denied. Wiki link to SCO. BTW, this list needs updating.

Wed, 10/27/2010 - 19:49 | 681918 unum mountaineer
unum mountaineer's picture're scaring people.. "no americans allowed" club..maahmmy?!?

Wed, 10/27/2010 - 19:53 | 681927 Snidley Whipsnae
Snidley Whipsnae's picture

Just callin' em like they are! :)

Mericans have no clue how big a part gold will play in their futures.

But, they will learn. As Churchill said "Americans always do the right thing...after they have tried everything else."

Thu, 10/28/2010 - 00:19 | 682424 StychoKiller
StychoKiller's picture

Another "round-eye" bites the dust!  Take a hike, Kwai-lo. :(

Wed, 10/27/2010 - 19:34 | 681884 Blah Blah Blah
Blah Blah Blah's picture

My wife likes to wear gold, that's reason enough to buy it!

Wed, 10/27/2010 - 19:49 | 681920 Snidley Whipsnae
Snidley Whipsnae's picture

One of the very few observations that Keynes made...that make any sense whatsoever!

"There is the possibility... that after the rate of interest has fallen to a certain level, liquidity preference is virtually absolute in the sense that almost everyone prefers cash to holding a debt at so low a rate of interest. In this event, the monetary authority would have lost effective control.
John Maynard Keynes, The General Theory

Substitute the word gold for cash...Bingo!



Wed, 10/27/2010 - 22:53 | 682278 nuinut
nuinut's picture

Nice one.

Wed, 10/27/2010 - 19:36 | 681887 seek
seek's picture

In other words:


Wed, 10/27/2010 - 19:49 | 681921 Goldenballs
Goldenballs's picture

America,s enemies are going to set up their own Gold Standard and buy major assets in the West.

Wed, 10/27/2010 - 20:03 | 681952 Snidley Whipsnae
Snidley Whipsnae's picture

The WORLD gold standard never went away, but was suppressed by credit based fiat currencies while the world economy was expanding. Future generations will look back, stupified that anyone would consider trading paper backed by nothing for gold or any other commodity.

Contracting debt based fiat currencies/economies weild far less power than they did ten years ago. When contraction/deflation sets in the power of the Fed goes south. Got gold?

The times they are a-changing

Wed, 10/27/2010 - 23:21 | 682331 Lucius Corneliu...
Lucius Cornelius Sulla's picture

In a deflation it is better to have cash.  Gold will fall in price just like all the other stuff.  IMO, when the house of cards (otherwise known as the US economy) collapses, the FED will not be able to print fast enough to shore up all the defaulting debt.

Wed, 10/27/2010 - 19:52 | 681924 mt paul
mt paul's picture


tungsten bars

Wed, 10/27/2010 - 19:54 | 681933 Snidley Whipsnae
Snidley Whipsnae's picture

You will soon find that tungsten bars are worth far more than defunct fiat currencies.

Wed, 10/27/2010 - 22:53 | 682281 nuinut
nuinut's picture

LOL. I'd like to buy this man a beer.

Wed, 10/27/2010 - 21:13 | 682096 laosuwan
laosuwan's picture

If you think the chinese people are going to go out and buy gold think again. here in thailand our per capital gdp is much higher than china and so are our foreign exchange reserves, for that matter. Yet if you look in the gold shops in thailand, they are empty. no one has the free cash to play with gold. its certainly worse than that in china where people are wage slaves. now, yes, the top 1% income earners and the government can buy gold, but dont imagine billions of chinese all buying gold. they dont have the money to buy gold.

Wed, 10/27/2010 - 21:20 | 682116 Quinvarius
Quinvarius's picture

A person with $50 can't afford $50 worth of gold?  Wow.  Things must really be bad if one cannot even afford a small piece of an infinitely divisible metal. 

Wed, 10/27/2010 - 21:22 | 682120 Quinvarius
Quinvarius's picture

And BTW, your country greatly ramped gold purchases.


Thu, 11/04/2010 - 11:31 | 699663 laosuwan
laosuwan's picture

the gold coming in here that you are talking about is not bought by the government but the jewelery industry and much of it is exported to india and elsewhere in SE Asia or sold to tourists like you.

Wed, 10/27/2010 - 22:10 | 682204 thermroc
thermroc's picture

I've thought again, and I still think Chinese people are buying gold. Any other advice?

Thu, 11/04/2010 - 11:34 | 699679 laosuwan
laosuwan's picture

i did not offer you any advice.

Wed, 10/27/2010 - 22:27 | 682231 TheGreatPonzi
TheGreatPonzi's picture

I live in Thailand 6 months per year and gold is very popular there. Another "troll"?

Thu, 10/28/2010 - 02:13 | 682600 nobita
nobita's picture

i live in thailand too and i have to agree.
people like gold for saving, their currency was butchered back in the late nineties so they know firsthand how fragile fiat can be.

Thu, 11/04/2010 - 11:27 | 699645 laosuwan
laosuwan's picture

we like our currency very much. gold usually is not much more than 5% of our savings. Most transactions, even with government, are still done in baht notes. and we are all expecting to be back to 25 baht to the dollar by next year so we are very happy with our currency.

Thu, 11/04/2010 - 11:25 | 699630 laosuwan
laosuwan's picture

I am thai and live here now; of course we like gold but look in the gold shops and tell me if they seem crowded with customers to you or not. No, they are mostly empty as people are too up in debt to invest in gold. If anything they are trading in gold to take advantage of the higher prices. 

Wed, 10/27/2010 - 21:16 | 682102 Kina
Kina's picture

Goodness the manipulation story even makes it onto the front page of MarketWatch. What happened. Hopefully this will bring others out of the woodwork.


Did JPM, HSBC fix silver?

J.P. Morgan, HSBC sued for silver manipulation


The suit says J.P. Morgan and HSBC in August 2008 together held 85% of the net short position in silver and by the first quarter 2009 held $7.9 billion in precious metal derivatives.

According to the other lawsuit filed by Brian Beatty, who also traded silver contracts, says he was hurt by J.P. Morgan's alleged anticompetitive acts and market manipulation. Specifically, the suit said Beatty, a Connecticut resident, bought and sold silver contracts on Aug. 14 and Aug. 15, 2008, when the price of silver suffered an 18% drop from $14.86 to $12.23.

Laskaris, a New York resident, also was hurt by the alleged "artificial market in COMEX silver futures" from June 2008 to June 2009, according to the lawsuit.


Wed, 10/27/2010 - 22:12 | 682209 thermroc
thermroc's picture

"Did they" not "Do they", highlighting past dates.

Disingenuous assholes.

Thu, 10/28/2010 - 03:06 | 682636 lewy14
lewy14's picture

Old conventional wisdom: Silver price suppression is a crank theory.

New conventional wisdom: Of course JPM suppressed the price, old news, get over it.


Wed, 10/27/2010 - 21:23 | 682122 Kina
Kina's picture

China is so huge that even a tiny percentage of the population that has becoming the monied class can be the size of a small country's working population. That is a lot of demand.

I watch exclusively mainland Chinese and HK tv every night and have seen the Chinese buying gold stories a number of times, with vision of them lined up outside gold shops.

The Chinese have always loved bullion and see it as a natural buy. When a told my wife (HK Chinese) that I was going to convert a big bunch of our cash into gold and silver she said OK.

Would be interesting to know what numbers of the Chinese working population would have the capacity/spare cash to buy gold.

Wed, 10/27/2010 - 21:35 | 682148 Spalding_Smailes
Spalding_Smailes's picture

It’s China’s turn to pop a world-class asset bubble and smash the global economy

• China tried to pop its property bubble once before but the global economic catastrophe caused the US financial crisis aborted the effort in 2008
• This week China re-launched the crash phase of its Greenspan Credit Bubble with Chinese Characteristics

• Watch out for flying bricks

Why don’t central banks, and the governments they front for, ever learn? The only way to prevent macro-economic damage from a collapsed asset bubble is to not allow a bubble to develop in the first place. Once a government takes the path of winning popular favor with the temporary prosperity that’s produced by asset price inflation, there is no easy way out, as Japan re-discovered in the 1990s, the US found out again in the 2000s, and China will experience soon enough. As part of our project to map out the coming decade, this week we investigate the prospect of the collapse of the Greenspan Credit Bubble with Chinese Characteristics.

Monday China embarked anew on a treacherous program of rate hikes to end a property bubble that took root there in 2005.

Here is a game readers can play at home to simulate the genius of a central bank managing an asset bubble down via interest rate hikes.

Find a cinder block and a bungee chord. Place the cinder block on the far end of your kitchen table. Attach one end of the bungee chord to the cinder block and put the other end between your teeth. Kneel down so that your face is level with the tabletop and pull the chord until it is taught.

Now it’s time to begin “tightening” the way central banks try to, bit by bit, to bring an asset bubble to a benign end, or so they believe.

Pull ¼ of an inch. If nothing happens then pull another ¼ inch. If nothing happens then do it again, and again.

Silly game, you’re thinking. A child can see how this will turn out. Sooner or later that concrete brick will sing across the table and smash your face.

As obvious as the outcome might be to a 10-year-old, the brick-in-the-face lesson remains lost on central banks. They must be slow learners because repeat it over and over. Or perhaps there is a common institutional neurosis shared among central banker’s that compels them to repeat the same mistake, to recreate the experience of concrete on teeth.

For years I’ve referred to China’s asset bubble economy as a Greenspan Credit Bubble with Chinese characteristics. This week we find that not only the policies that created China’s bubbles but even the policy responses to attempt to tame them mirror Greenspan’s.

Democracy or dictatorship, credit bubbles buy political favor... while they last

The beauty of a credit bubble is that while they expand both the creditor and the debtor believes they are getting rich. But unless the asset purchased with debt is appreciating, as might a piece of farmland, in fact only one of the two of them is getting richer, the one who holds the loan has an asset on his or her balance sheet. The debtor may increase his or her purchasing power temporarily, but once the cash is spent -- on a car or tuition at a culinary school or a home in the US since 2006 -- all they have left is a depreciating asset and a liability.

After a bubble gets big and fearsome enough, and all of the political benefits have accrued – capital gains tax revenues, high paying appointments to influential political posts such as running Fannie Mae or Freddie Mac, large scale wealth redistribution from debtors to creditors, and so on – and a catastrophic crash looms, first governments attempt to slow a bubble gingerly, such as restricting bank credit and raising taxes on particular classes of capital gains.

But speculators are not discouraged by such half-measures. The specter of marginally higher costs pale beside the dreams of quick riches created by the central bank during years of bubble growth. The speculator believes that the wealth and success they have achieved during the bubble resulted from their own genius, and this misguided view undoes all but the most self-aware of investors in such periods. The idea that excess liquidity and cheap credit were the main sources of their good fortune only occurs only to a small number of those who understand how asset bubbles operate, both economically and politically, as readers have since 1998 when we played the technology bubble until April 2000.

Asset versus wage and commodity price inflation: the central banker’s game

If commodity and wage inflation containment policy is all about managing consumer inflation expectations downwards, then the central bank’s policies that produce asset price inflation, to bribe the middle class into accepting insane levels of income and wealth inequality, is aimed at managing speculators' asset price inflation expectations upwards. Later, affecting an asset bubble policy about-face from encouragement to discouragement is like trying to convince Paris Hilton fans to stop reading her tweets.

The “solution” that the Greenspan Fed devised to quell the technology stock bubble was a program of 25 basis point rate hikes. The theory was that these clearly communicate the central bank’s determination to end the bubble, and cause the speculators to exit the market in an orderly fashion.

The central bankers’ dream is that these tender rate hikes will first slow the bubble, then allow it to deflate gradually to give the macro-economy a soft landing. But that never happens. They believe this despite the evidence that these measures cause the asset bubble to collapse. Every. Single. Time. It’s as predictable as the laws of physics that propel a brick airborne.

Wed, 10/27/2010 - 21:40 | 682154 johngaltfla
johngaltfla's picture

All we need November 3rd:


Fed says they'll only buy $500 Billion over the next 8 months.

China says FU and says they are liquidating all MBS and demanding par value.

Or Else.

Bernanke's asshole needs Prep H then.

Wed, 10/27/2010 - 22:47 | 682265 marty.mcfly
marty.mcfly's picture

What do you guys think about Warren Buffett's comment on gold:

"Look," he says, with his usual confident laugh. "You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"

Thu, 10/28/2010 - 05:38 | 682742 saulysw
saulysw's picture

On my wall I have a 100 TRILLION dollar note. From Zimbabwe. However, it is a reminder that impressive numbers written on paper do not consitute wealth. At least, not permanently if your government is misbehaving. That "walk around money" of $1 trillion in Zim dollars would not buy you a banana. They started with 1 DOLLAR notes in July 2008. It took less than a year to go bang.

Farmland can be taxed, by the same misbehaving government.

Gold is a storage of wealth with NO counterparty risk.

Wed, 10/27/2010 - 23:16 | 682312 Lucius Corneliu...
Lucius Cornelius Sulla's picture

The current price of gold already factors in a very high inflation speculation premium.  IMO, if China decides to buy in earnest at this time, they will probably pay too much.

Current value of 1913 dollar = .04

1/.04 = 25

Dollar value of an ounce of gold in 1913 = $20

$20 * 25 = $500 per ounce

Current price ~ $1,350

$1,350 - $500 = $850

$850 / $500 = 170% 

Current speculative premium for inflation = 170%

Thu, 10/28/2010 - 00:20 | 682425 Fred Hayek
Fred Hayek's picture

Of course, even someone like myself who never even took econ 101 would know to ask whether the supply and demand for this item are the same as in 1913. 

The context is not the same as in 1913.


Thu, 10/28/2010 - 00:42 | 682463 Lucius Corneliu...
Lucius Cornelius Sulla's picture

Its a back of the envelope calculation.  The point is that I think there is already a significant speculative inflation premium factored into the price.

Thu, 10/28/2010 - 07:39 | 682804 Snidley Whipsnae
Snidley Whipsnae's picture

"The point is that I think there is already a significant speculative inflation premium factored into the price."

Are you saying that gold purchasers have, every year for the last ten years, included their decision to purchase gold, that inflation is coming and have priced it into their purchases of gold?

Are you claiming that those that have purchased gold for the past ten years are extremely prescient and steadfast in their belief that inflation is coming and have stuck to their gold buying throughout all the market upheavels and credit dislocations of the past ten years?

If so, I find your theory bestows almost super natural foresight to gold purchasers, especially since less than one percent of US porfolios include any gold.

I believe it is far more likely that gold purchasers of the past ten years discovered a niche market that had been suppressed by the Fed via the bullion banks short sales and began exploiting the niche market of gold.

The near melt down of the world credit system only threw fuel on the fire of gold purchases, and stopped central banks/bullion banks from selling gold to suppress the price of gold.

A more credible reason for the rise of gold prices for the past ten years is FEAR. People, and central bankers are people (allbeit disgusting people) are afraid. The flight into gold is gaining momentum because people are afraid that fiat currencies backed by nothing are being printed to infinity. If frightened people look around for a safe haven, what do they see? Gold and other commodities.

Farmland is a good place to park dollars ONLY if you believe that the taxing authorities will not force one out of their land. If you read 'The Fall Of The Roman Empire', you will find that Rome was forced, due to food scarcity, to pass laws making it illegal for farmers to give away their farms! Farmers were forced to stay on their farms and operate them at tremendous losses, or be thrown to the lions in the Colosseum! At the same time Rome made giving up Roman Citizenship a crime.

The dollar is finished as a world currency and it might be replaced as the US currency. Gold is the insurance that will deliver one from a dying currency to the 'new' currency, once the new currency is introduced and is proven relatively stable.

IOWs, I aint buying your 'gold buyers have priced in inflation for the past ten years theory'.


Thu, 10/28/2010 - 11:01 | 683282 fiddler_on_the_roof
fiddler_on_the_roof's picture

Welcome back Johnny Bravo.
Substitute dollar depreciation to 98.5%
Also the assumption that Gold price @ $20 in 1913
Is absolute is wrong

Now you can easily get $10,000/oz
It looks like you get paid to post here.

Thu, 10/28/2010 - 04:40 | 682702 Sad Sufi
Sad Sufi's picture

You might be right Lucius, but it is hard to keep the faith in the FRN just the same.  Farmland maybe...

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